How to Keep Your Good Credit When Opening Cards - a quick way to keep your credit up while finding airline rewards credit cards!
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I have talked a good deal about credit scores in this series- and for good reason.
I'm a bit obsessed with my credit score after I had a few downturns thanks to moving (how can literally anyone but a hospital find my new address, especially when I call them to be sure they have it?!?!?!) and a health insurance company that closed without paying a big tab for my daughter's birth, which nobody clued me in on until they sent it to a credit bureau first.
Thankfully, while credit scores and reporting are completely shadowy and intimidating, you can improve your score with a good mindset- and opening new credit cards can actually help to improve your score! Don't know your credit profile? Find out here!
So why is a credit score important?
Basically, it gives lenders a glimpse at your financial history. It is a number you're assigned at how lend-worthy you are- which renters, banks, utilities, etc. then use to determine if they want to do business with you, and what sort of rate or deposit you'll need to put down.
Basically- a better credit score can mean real financial benefit to you.
Now, before we get into the nitty gritty, I want to put a quick disclaimer out there.
I am not in any way a financial expert (despite my dad working for banks and credit unions my whole life, and my former position as a credit union lobbyist I am not naturally "good" with money- I am WAY too distracted by shiny new things and not a natural planner at all....) I am sharing what has worked for ME, in my financial situation.
I strongly suggest speaking to a financial planner before opening a bunch of credit cards, and I strongly urge you to not use cards to ring up big balances. Start by checking out your credit score, and looking around at the information the credit bureau gives you to improve your score.
What we're going to be doing in this series is using the same amount of spending you already have (or hey, if you can spend less, that's great too!!), just on a credit card- which is then paid off like you're using cash.
First off, if you don't have good credit or a lengthy credit history, open a card that will work for you. Having credit cards actually helps your credit - think of it as a paper trail of evidence to lenders, showing them that you can make payments and manage credit well.
-Don't ring up big balances.
Look, life happens. But one major factor in credit score calculation is your debt to credit ratio. If you have a $5,000 credit limit and have $4,000 in charges on your card, you have a high credit card utilization. This looks bad to creditors, because if something comes up, you might be in a pickle when it comes to paying.
Outside of just your credit score, it isn't a good idea to ring up big tabs on credit cards. It can put your family at real financial risk- which sort of defeats our purpose of trying to get stuff free.
Try to keep your credit card utilization under 20-30%.
-Don't let cards sit unused.
This one sounds weird, but hear me out:
The whole point of having multiple cards in your name is to show lenders you can manage credit card payments, and increase your card payment history. This takes time- it can't just be done overnight.
What lenders want to see is a payment history. If you don't use a card, you can't prove that you can pay your bills. The whole point of using cards (in this scenario, to build a credit history) is to prove you can pay your bills- so leaving a card unused basically negates anything you're trying to do.
In addition to not contributing to your financial history, leaving credit cards unused will cause the institutions to close your accounts, which is a fast way to lower your score.
-Keep Balances Low. Lending institutions want to see that you can have accounts open, pay them on time, and be responsible with your money. To illustrate that, you need to use your cards, and use them well.
By keeping your credit utilization under 20-30%, you are illustrating to a lender that you're responsible and not at risk for financial ruin. Basically, they want to see you won't run up a big tab. So by positioning yourself in a better light by only utilizing 20-30% of your credit, you will be much more attractive for lenders and be able to apply for more exclusive and rewarding cards! View additional excellent credit card offers here.
-Lastly, if you don't have good credit, don't get discouraged. For many young people, having a good credit score is almost impossible. Start with a bad credit credit card and treat it like cash- paying it off immediately after use- to get your credit to go up quickly. As it grows, add more cards (slowly), to keep growing your score! View additional bad credit offers here.
Want to know more about using credit cards? View additional creditcards.com articles here.